Finance Committee on March 3rd, 2022

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you.

I'm sorry that our time is coming to a close. There are certainly a number of other things I'd be happy to get your thoughts on. I'm going to put one out there in case you want to answer, but I think I might know your answer. I am interested in those who are far more exposed to hikes in interest rates, either because they just have lower incomes, or because they have a higher debt-to-income ratio.

What kinds of fiscal policies might complement rising interest rates in order to try to relieve the pressure on households that are going to be disproportionately affected by rising interest rates? I'm putting that out there in case you want to come to that.

I have a second question, for which I have more optimism about getting an answer, regarding central bank mandates.

In Canada, we just renewed the mandate. Full employment didn't enter into the mandate. We know that some of our other allies are incorporating other things into central bank mandates. I believe New Zealand has explicitly incorporated something on housing prices in its mandate. The United Kingdom has incorporated a kind of green financing or climate change-related principle to its mandate.

On that last point, what role do you believe the Bank of Canada could play in trying to transition Canada away from investments in fossil fuels and other carbon-intensive industries, and are there other ways the Bank of Canada might help the Canadian economy transition towards a more green and sustainable model?

[Tiff Macklem]

With respect to climate change, we have a mandate at the Bank of Canada to foster a stable and efficient financial system. A key role of the financial system is to channel savings to productive investments. As we learned in the last crisis in 2008-09—it didn't happen so much in Canada, but globally—if the financial system becomes unstable, everybody suffers.

One of the risks to the financial system is that climate risks are mispriced. The risk, to be frank, is that they're underpriced. A reckoning then comes and there's a very rapid repricing of that risk, which, if it were large, could lead to financial stability issues.

The other part of the job of the financial system is to efficiently allocate capital to its most productive investment. If you're underpricing climate risk, the risk is that you're not going to invest enough in renewable energy or more climate-friendly investments.

As I said in response to a previous question, it's very hard. There's so much uncertainty about climate change that it's very hard to make predictions. We undertook a study with OSFI and six financial institutions to look at scenario analysis. What came out of that study, which we published in January, is that there is a lot of adjustment for the Canadian economy to adapt to climate change—

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

If I may jump in, one of the issues and why the traditional rubric is frustrating for a lot of Canadians who are concerned about the very real threats of the climate crisis is that there doesn't seem to be the sense of urgency that I and many Canadians believe we have to have in order to try to get this problem under control. We continue to see huge investments in the fossil fuel industry and not enough of that being redirected towards initiatives that would lower our carbon footprint in order to try to follow the advice of the IPCC, for example, to keep warming around 1.5°C.

Do you think that incorporating these things more explicitly into the central bank's mandate could help foster a higher sense of urgency, not just in the Bank, but within the financial sector?

[The Chair, Liberal, Peter Fonseca]

Governor, this will be your final answer for our committee.

[Tiff Macklem]

There are elements of climate change that relate to the Bank of Canada's mandate, whether it's through a stable and efficient financial system or looking at the implications of climate change for monetary policy. I don't think we need a separate mandate. There is value in having a clear price stability mandate. Where climate change has implications for the mandates we have, we will take that very seriously.

This is a huge generational challenge, and it's going to take many parts of the system to address it.

[The Chair, Liberal, Peter Fonseca]

Thank you, Governor, and thank you, Mr. Blaikie.

I know I speak on behalf of all members, the clerk, the analysts, staff and interpreters who are here when I thank Governor Macklem and Senior Deputy Governor Rogers for appearing before our committee.

I know this is a very busy time for you. We asked you to appear before us on short notice. We thank you for your testimony and the answers to the many questions. Thank you very much.

[Tiff Macklem]

It's a pleasure, and it's important. Thank you for having us.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Members, do I have a motion for adjournment? Yes.

(Motion agreed to)

We are adjourned.